Parsley Energy LLC Upgraded To 'BB-' On Expectation For Continued Production And Reserve Growth, Outlook Stable

  • We completed a review of Parsley Energy LLC and have updated our base-case assumptions to reflect the company's improved costs, increased production and reserves in the Permian Basin, and solid 2018 performance.
  • We are raising our issuer credit rating on Parsley to 'BB-' from 'B+'.
  • At the same time, we are revising our recovery rating on the company's senior unsecured debt to '3' from '2'. The 'BB-' issue-level rating remains unchanged.
  • The stable outlook reflects our expectation that the company will maintain a funds from operations (FFO)-to-debt ratio of more than 20% while reducing the degree to which it outspends its free cash flow in 2019.
NEW YORK (S&P Global Ratings) April 4, 2019—S&P Global Ratings today took the 
rating actions listed above.  The upgrade reflects our expectation that 
Parsley will maintain a more conservative financial policy, by reducing the 
degree to which it outspends its cash flow generation, while continuing to 
increase its production and reserves. The upgrade also reflects our revised 
growth rate assumptions for Parsley's oil production and reserves over the 
next few years, which will bring the company's production and reserve levels 
more in-line with those of its 'BB-'-rated peers. We expect that the company 
will continue to experience solid drilling success in the Permian Basin and 
increase its daily production to around 130 thousand barrels of oil equivalent 
per day (Mboe/d) in 2019. We also expect Parsley to continue to increase its 
proportion of proved developed reserves by building on the progress it made in 
2018. We view proved developed reserves as more favorable than undeveloped 
reserves given their lower risk and costs. In addition, we project that 
Parsley's core credit measures will remain strong over the next few years, 
with FFO to debt of around 35%-40% and debt to EBITDA of around 2.0x-2.5x.


The stable outlook on Parsley Energy reflects our belief that the company will 
maintain double-digit percent production growth while increasing its reserves 
over the next 12 months. We expect the company to maintain adequate liquidity 
and credit measures that are appropriate for the current rating, including FFO 
to debt of more than 20% and debt to EBITDA of less than 4x.

We could lower our rating on Parsley if its credit measures weaken such that 
its FFO to debt approaches 20% without a clear path for improvement. We 
believe this could occur if the company assumed a more aggressive capital 
spending program than we forecast, if its production is weaker than our 
current projections for several quarters, or if crude oil prices weaken 
meaningfully and the company does not reduce its capital spending.

We could raise our rating on Parsley if its credit measures improve such that 
its FFO to debt remains above 45% and the company spends closer to its cash 
flow levels while maintaining adequate liquidity. We believe this could occur 
if the company continues to increase its production and cash flow while 
maintaining a moderate amount of debt.
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